<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-16888
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First Capital Income and Growth Fund - Series XII
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3498223
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606-2607
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(Address of principal executive offices) (Zip Code)
(312) 207-0020
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated May 8, 1987, included
in the Partnership's Registrant's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
<PAGE>
BALANCE SHEETS
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(Unaudited) 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 16,678,900 $ 16,678,900
Buildings and improvements 99,713,300 99,081,100
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116,392,200 115,760,000
Accumulated depreciation and amortization (24,686,100) (21,732,700)
- -------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 91,706,100 94,027,300
Cash and cash equivalents 4,655,700 4,339,000
Restricted certificates of deposit and escrow
deposit 119,800 157,300
Rents receivable 443,100 540,400
Escrow deposits 783,100 332,900
Other assets (net of accumulated amortization on
loan acquisition costs of $1,248,000 and
$1,156,200, respectively) 617,400 724,700
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$ 98,325,200 $100,121,600
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage loans payable $ 59,955,000 $ 61,195,100
Front-End Fees Loan payable to General Partner 13,434,400 13,434,400
Accounts payable and accrued expenses 3,314,700 2,508,500
Due to Affiliates 291,600 250,300
Security deposits 325,600 303,200
Other liabilities 288,900 213,100
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77,610,200 77,904,600
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Partners' (deficit) capital:
General Partner (1,570,600) (1,562,700)
Limited Partners (1,000,000 Units authorized and
issued, 952,747 and 959,825 Units outstanding at
September 30, 1995 and December 31, 1994,
respectively) 22,285,600 23,779,700
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20,715,000 22,217,000
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$ 98,325,200 $100,121,600
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</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1995 and the year ended December 31,
1994
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1994 $(1,415,300) $39,375,300 $37,960,000
Repurchase of Units (1,001,000) (1,001,000)
Net (loss) for the year ended December
31, 1994 (147,400) (14,594,600) (14,742,000)
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Partners' (deficit) capital,
December 31, 1994 (1,562,700) 23,779,700 22,217,000
Repurchase of Units (710,200) (710,200)
Net (loss) for the nine months ended
September 30, 1995 (7,900) (783,900) (791,800)
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Partners' (deficit) capital,
September 30, 1995 $(1,570,600) $22,285,600 $20,715,000
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1995 and 1994
(Unaudited)
(All dollars rounded to nearest 00s
except Unit and per Unit amounts)
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $4,230,400 $4,006,300
Interest 63,600 44,600
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4,294,000 4,050,900
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Expenses:
Interest:
Affiliate 273,300 245,300
Nonaffiliates 1,177,500 1,081,500
Depreciation and amortization 1,022,600 1,078,900
Property operating:
Affiliates 266,200 186,000
Nonaffiliates 559,500 554,200
Real estate taxes 645,100 644,700
Insurance--Affiliate 37,000 46,700
Repairs and maintenance 590,000 597,800
General and administrative:
Affiliates 26,900 11,800
Nonaffiliates 40,900 62,600
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4,639,000 4,509,500
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Net (loss) $ (345,000) $ (458,600)
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Net (loss) allocated to General Partner $ (3,500) $ (4,600)
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Net (loss) allocated to Limited Partners $ (341,500) $ (454,000)
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Net (loss) allocated to Limited Partners per Unit $ (0.36) $ (0.47)
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Weighted average number of Units outstanding 952,747 962,445
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</TABLE>
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1995 and 1994
(Unaudited)
(All dollars rounded to nearest 00s
except Unit and per Unit amounts)
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Income:
Rental $12,866,700 $12,295,800
Interest 182,600 117,800
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13,049,300 12,413,600
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Expenses:
Interest:
Affiliate 819,300 661,500
Nonaffiliates 3,555,800 3,117,200
Depreciation and amortization 3,045,200 3,304,800
Property operating:
Affiliates 785,200 664,000
Nonaffiliates 1,715,000 1,821,900
Real estate taxes 1,942,400 1,926,500
Insurance--Affiliate 113,100 139,700
Repairs and maintenance 1,647,600 1,714,300
General and administrative:
Affiliates 49,600 46,300
Nonaffiliates 167,900 167,7000
Loss on sale of property 101,500
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13,841,100 13,665,400
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Net (loss) $ (791,800) $(1,251,800)
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Net (loss) allocated to General Partner $ (7,900) $ (12,500)
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Net (loss) allocated to Limited Partners $ (783,900) $(1,239,300)
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Net (loss) allocated to Limited Partners per Unit $ (0.82) $ (1.28)
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Weighted average number of Units outstanding 955,124 965,105
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</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (791,800) $ (1,251,800)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,045,200 3,304,800
Loss on sale of property 101,500
Changes in assets and liabilities:
Decrease in rents receivable 97,300 344,000
Decrease in other assets 22,800 53,600
Increase in accounts payable and accrued expenses 806,200 608,100
Increase (decrease) in due to Affiliates 41,300 (14,200)
Increase (decrease) in other liabilities 75,800 (476,800)
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Net cash provided by operating activities 3,296,800 2,669,200
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Cash flows from investing activities:
Proceeds from sales of commercial rental property 4,106,100
Payments for capital and tenant improvements (632,200) (1,471,300)
(Increase) in escrow deposits (450,200) (676,700)
Maturity of (investment in) restricted certificate
of deposit 37,500 (37,500)
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Net cash (used for) provided by investing
activities (1,044,900) 1,920,600
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Cash flows from financing activities:
Principal payments on mortgage loans payable (1,240,100) (23,754,400)
Proceeds from mortgage loans payable 19,417,700
Repurchase of Units (710,200) (751,600)
Payment of loan extension fees (7,300) (311,600)
Refund of deposit on loan refinancing 190,000
Increase in security deposits 22,400 6,400
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Net cash (used for) financing activities (1,935,200) (5,203,500)
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Net increase (decrease) in cash and cash
equivalents 316,700 (613,700)
Cash and cash equivalents at the beginning of the
period 4,339,000 4,913,300
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Cash and cash equivalents at the end of the period $ 4,655,700 $ 4,299,600
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Supplemental information:
Interest paid to Affiliate during the period $ 808,900 $ 631,500
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Interest paid to nonaffiliates during the period $ 3,562,500 $ 3,051,500
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles. Under this method of accounting, revenues are
recorded when earned and expenses are recorded when incurred.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1995 are not necessarily
indicative of the operating results for the year ending December 31, 1995.
Certain reclassifications have been made to the previously reported 1994
statements in order to provide comparability with the 1995 statements. These
reclassifications have no effect on net (loss) or Partners' capital (deficit).
The financial statements include the Partnership's 50% interest in three joint
ventures and its 25% interest in another joint venture with Affiliated
partnerships. Two of the 50% joint ventures and the 25% joint venture were
formed for the purpose of each acquiring a 100% interest in certain real
property and one of the 50% joint ventures was formed for the purpose of
acquiring a preferred majority interest in certain real property. These joint
ventures are operated under the common control of the General Partner. In
addition, the 1994 financial statements include the Partnership's 50% interest
in three joint ventures with Affiliated partnerships, one of which was formed
for the purpose of acquiring a 100% interest in certain real property and two
of which were formed for the purpose of each acquiring a preferred majority
interest in certain real property. These joint ventures were operated under the
common control of the General Partner prior to the sale of two of these
properties on June 29, 1994 and the sale of the other on December 29, 1994.
Accordingly, the Partnership's pro rata share of the ventures' revenues,
expenses, assets, liabilities and capital is included in the financial
statements.
Cash equivalents are considered all highly liquid investments purchased with a
maturity of three months or less.
Reference is made to the Partnership's annual report for the year ended
December 31, 1994 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to November 22, 1988, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, which shall be an
amount equal to the lesser of (i) 0.5% of the gross value of the Partnership's
assets (not reduced by indebtedness collateralized by such assets), all as
estimated by the General Partner in its reasonable discretion, plus, to the
extent the Portfolio Management Fee paid in any prior year was less than 0.5%
of the gross value of the Partnership's assets in such prior year, the amount
of such deficit, or (ii) an amount equal to the remainder obtained by
subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal year, from an amount equal to 10%
of the Partnership's aggregate Cash Flow (as defined in the Partnership
Agreement) (computed prior to the deduction for Portfolio Management Fees) for
such fiscal year. For the quarter and nine months ended September 30, 1995, in
conjunction with the suspension of distributions of Cash Flow (as defined in
the Partnership Agreement) to Limited Partners, the General Partner was not
paid a Portfolio Management Fee.
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from a Major Capital Event) are
allocated 1% to the General Partner and 99% to the Holders as a group. Net
Losses from a Major Capital Event are allocated: first, prior to giving effect
to any distributions of Sale or Refinancing Proceeds from the transaction, to
the General Partner and Holders with positive balances in their Capital
Accounts, in proportion to and to the extent of such positive balances; and
second, the balance, if any, 1% to the General Partner and 99% to the Holders
as a group. Net Profits from a Major Capital Event are allocated: first, prior
to giving effect to any distributions of Sale or Refinancing Proceeds from the
transaction, Net Profit in the amount of the Minimum Gain (as defined in the
Partnership Agreement) attributable to the property that is the subject of such
Major Capital Event is allocated to the General Partner and Holders with
negative balances in their Capital Accounts, pro rata in proportion to such
respective negative balances; second, to the General Partner and each Holder in
proportion to and to the extent of the amounts, if any, equal to the amount of
Sale or Refinancing Proceeds to be distributed to each such General Partner or
Holder with respect to such Major Capital Event; and third, the balance, if
any, 20% to the General Partner and 80% to Holders as a group. Notwithstanding
anything to the contrary, there shall be allocated to the General Partner not
less than 1% of all items of Partnership income, gain, loss, deduction and
credit during the existence of the Partnership. For the quarter and nine months
ended September 30, 1995, the General Partner was allocated a Net (Loss) of
$(3,500) and $(7,900), respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Paid
--------------------
Quarter Nine Months Payable
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and leasing fees $292,800 $ 746,600 $179,700
Interest expense on Front-End Fees Loan
(Note 3) 275,300 808,900 88,100
Reimbursement of property insurance premiums, at
cost 37,000 108,400 None
Reimbursement of expenses, at cost:
(1) Accounting 8,300 19,400 11,100
(2) Investor communication 3,600 10,500 12,700
(3) Legal 11,100 31,000 None
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$628,100 $1,724,800 $291,600
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</TABLE>
ANTEC Corporation ("ANTEC"), in the business of designing, engineering,
manufacturing and distributing cable television products, and is 30% owned by
Anixter International, Inc., an Affiliate of the General Partner, is obligated
to the Partnership under a lease of office space at Prentice Plaza. During the
quarter and nine months ended September 30, 1995, ANTEC paid $108,800 and
$312,100, respectively, in rent. The Partnership owns a 50% joint venture
interest in these rents. The rents paid by ANTEC are comparable to those paid
by other tenants at Prentice Plaza.
3. FRONT-END FEES LOAN PAYABLE TO GENERAL PARTNER:
The Partnership originally borrowed from the General Partner an amount needed
for the payment of securities sales commissions, Offering and Organizational
Expenses and other Front-End Fees, other than Acquisition Fees. Repayment of
the principal amount of the Front-End Fees Loan is subordinated to repayment to
the Unit Holders of 100% of their Original Capital Contribution from Sale or
Refinancing Proceeds (as defined in the Partnership Agreement). Interest on the
outstanding balance of this loan is due and payable monthly at a rate no
greater than the cost of funds obtained by an Affiliate from unaffiliated
lenders.
As of September 30, 1995, the Partnership had drawn $13,434,400 under the
Front-End Fees Loan agreement. The interest rate paid on the Front-End Fees
Loan is subject to change in accordance with the loan agreement. The weighted
average interest rate for the quarter and nine months ended September 30, 1995
was 8.14% and 8.13%, respectively. As of September 30, 1995, the interest rate
was 7.875%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 37-month period
beginning March 1, 1993. In addition, any interest payments paid by the
Partnership from March 1, 1993 through April 1, 1996 may be borrowed from the
General Partner. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on April 1, 1996, and shall
not be subordinated to repayment to the Unit Holders. As of September 30, 1995,
the Partnership had not exercised its option to defer the payment of interest
on this loan.
4. RESTRICTED CERTIFICATE OF DEPOSIT AND ESCROW DEPOSIT:
Restricted certificate of deposit represented a negotiable certificate of
deposit in the amount of $80,000 which had been pledged as collateral for a
security deposit to the Louisville Gas & Electric Company. This certificate of
deposit matured on October 4, 1995 and was reinvested at that time.
Restricted escrow deposit at September 30, 1995 represented $159,400, of which
the Partnership's share was 25%, being held by the mortgage holder of the
Regency Park Shopping Center in a non-interest bearing escrow account. The
Partnership's share is refundable to the Partnership upon this property meeting
certain operating requirements as disclosed in the mortgage note.
5. REPURCHASE OPTION:
On January 1, 1991, the Repurchase Option period commenced for the repurchase
of Limited Partnership Interests. This Repurchase Option, as defined by the
Partnership Agreement, allows Holders of Units to resell their Interests to the
Partnership. During the first two years of the Repurchase Option period the
Partnership paid a price equal to 100% of the Unit Holders' Original Capital
Contribution reduced by all prior distributions previously made to the Holder.
During 1995, the fifth year of the Repurchase Option period, the Partnership
paid a price equal to 115% of the Unit Holders' Original Capital Contribution
reduced by all prior distributions previously made to the Holder. The maximum
amount of Interests that the Partnership shall be obligated to purchase during
the Repurchase Option period shall be 0.25% of the total Original Capital
Contribution for each and every calendar quarter during the Repurchase Option
period. The Repurchase Option will take place on a quarterly basis for a five-
year period ending December 31, 1995. As of September 30, 1995, the Partnership
has repurchased 47,151 Units which represented Original Capital Contributions
of $4,715,100. The repurchase of these Units, reduced by all prior
distributions previously made to the Holders, resulted in a net reduction of
Limited Partners' Capital and net cost to the Partnership of $4,280,500.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's annual report for the year ended
December 31, 1994, for a discussion of the Partnership's business.
As the Partnership progresses through the disposition phase of its life cycle,
management's discussion and analysis of financial condition and results of
operations is complicated to compare between periods. Results of operations and
cash flows as defined by generally accepted accounting principles ("GAAP") as
well as Cash Flow (as defined in the Partnership Agreement) are generally
expected to decline as real property interests are sold or disposed of since
the Partnership no longer realizes the results generated from such real
property interests. Accordingly, rental income, interest expense, depreciation
and amortization expense, property operating expenses, repairs and maintenance
expenses, real estate taxes and insurance are expected to decline, but will
continue to comprise the significant components of operations and cash flows
(as defined by GAAP) as well as Cash Flow (as defined in the Partnership
Agreement) until the final property is sold. Also, during the disposition
phase, cash and cash equivalents increase as Sale and Refinancing Proceeds are
received and decrease as the Partnership utilizes these proceeds for the
purposes of repayment of mortgage loans payable, making capital improvements
and incurring leasing costs at the Partnership's remaining properties or other
working capital requirements. Prior to being utilized for such purposes, these
proceeds are invested in short-term money market instruments. Sale and
Refinancing Proceeds are excluded from the determination of Cash Flow (as
defined in the Partnership Agreement).
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the quarters and nine months ended September 30,
1995 and 1994. The discussion following the table should be read in conjunction
with the Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results (a)
For the Quarters For the Nine Months
Ended Ended
9/30/95 9/30/94 9/30/95 9/30/94
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEIDINGER TOWER
Rental revenues $1,066,900 $1,122,200 $3,253,600 $3,154,600
- ---------------------------------------------------------------------------
Property net (loss) $ (170,200) $ (94,100) $ (538,200) $ (346,900)
- ---------------------------------------------------------------------------
Average occupancy 93% 91% 93% 89%
- ---------------------------------------------------------------------------
DEERFIELD MALL
Rental revenues $1,053,000 $ 958,900 $3,130,300 $2,922,500
- ---------------------------------------------------------------------------
Property net income $ 121,300 $ 27,800 $ 323,000 $ 202,200
- ---------------------------------------------------------------------------
Average occupancy 94% 89% 94% 88%
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EQUITABLE OF IOWA BUILDING
Rental revenues $ 920,800 $ 825,000 $3,008,100 $2,597,900
- ---------------------------------------------------------------------------
Property net income (loss) $ 73,600 $ (22,000) $ 527,100 $ 132,500
- ---------------------------------------------------------------------------
Average occupancy 99% 96% 99% 96%
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1800 SHERMAN OFFICE BUILDING
Rental revenues $ 396,300 $374,900 $1,170,700 $1,110,300
- -------------------------------------------------------------------
Property net income $ 65,200 $ 95,300 $ 264,300 $ 277,600
- -------------------------------------------------------------------
Average occupancy 97% 95% 98% 94%
- -------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS
Rental revenues $ 361,100 $304,300 $1,024,800 $ 844,800
- -------------------------------------------------------------------
Property net (loss) $ (74,900) $(73,200) $ (271,500) $ (321,100)
- -------------------------------------------------------------------
Average occupancy 87% 77% 86% 73%
- -------------------------------------------------------------------
PRENTICE PLAZA
Rental revenues $ 285,900 $251,700 $ 834,600 $ 792,700
- -------------------------------------------------------------------
Property net (loss) $ (61,300) $(69,400) $ (170,400) $ (195,500)
- -------------------------------------------------------------------
Average occupancy 97% 91% 97% 92%
- -------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER
Rental revenues $ 146,400 $132,300 $ 443,000 $ 393,900
- -------------------------------------------------------------------
Property net (loss) $ (16,100) $(33,100) $ (53,800) $ (106,900)
- -------------------------------------------------------------------
Average occupancy 88% 78% 88% 78%
- -------------------------------------------------------------------
PARK CENTRAL OFFICE PARK I, II AND III
(B)
Rental revenues $ 11,700 $ 371,500
- -------------------------------------------------------------------
Property net income $ 8,900 $ 5,100
- -------------------------------------------------------------------
Average occupancy (b) (b)
- -------------------------------------------------------------------
SENTRY PARK EAST OFFICE CAMPUS
Rental revenues $ 25,300 $ 107,600
- -------------------------------------------------------------------
Property net (loss) $ (5,100) $ (59,900)
- -------------------------------------------------------------------
Average occupancy 63% 61%
- -------------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income
and general and administrative expenses or are related to properties
disposed of by the Partnership prior to the periods under comparison.
(b) The joint ventures which owned Park Central Office Park I, II and III
("Park Central"), in which the Partnership had a 50% interest, sold Park
Central on June 29, 1994. The property net income excludes the (loss) from
the sale of the property which was included in the Statement of Income and
Expenses for the nine months ended September 30, 1994.
(c) The joint venture which owned Sentry Park East Office Campus ("Sentry
East"), in which the Partnership had a 50% interest, sold one of the
remaining three office buildings situated in this office campus on April
22, 1994. The property net (loss) excludes the (loss) from the sale of the
building which was previously reported by the Partnership as part of the
provision for value impairment in 1992. In addition, on December 29, 1994,
the joint venture which owned Sentry East sold the remaining two office
buildings situated in this office campus.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net loss for the Partnership decreased $113,600 or 25%, and $460,000 or 37%,
for the quarter and nine months ended September 30, 1995 when compared to the
quarter and nine months ended September 30, 1994, respectively. The decreases
in net loss for the quarterly periods under comparison were primarily due to
improved operating results at Equitable of Iowa Building ("Equitable"),
Deerfield Mall, Regency Park Shopping Center ("Regency Park") and Prentice
Plaza totaling $214,200 and an increase in interest income earned on short-term
investments of $19,000 due to an increase in the average interest rate earned
on these investments. Partially offsetting the decreases in net loss for the
quarterly period under comparison was a decrease in operating results at
Meidinger Tower and 1800 Sherman Office Building ("1800 Sherman") totaling
$106,200 and an increase in interest expense of $28,000 on the Partnership's
Front-End Fees Loan due to an increase in the variable interest rate. The
decreases in net loss for the nine-month periods under comparison were
primarily due to: 1) improved operating results at Equitable, Deerfield Mall,
Regency Park, Sentry Park West Office Campus ("Sentry West") and Prentice Plaza
totaling $643,200; 2) the absence of the net loss of $101,500 from the sale of
Park Central on June 29, 1994 and the 1994 Sentry East property net loss of
$59,900 and 3) an increase in interest income earned on short-term investments
of $64,800 due to an increase in the average interest rate earned on these
investments. Partially offsetting the decreases in net loss for the nine-month
period under comparison was a decrease in operating results at Meidinger Tower
and 1800 Sherman totaling $204,600 and an increase in interest expense of
$157,800 on the the Partnership's Front-End Fees Loan due to an increase in the
variable interest rate.
For purposes of the following comparative discussion, the operating results of
Park Central and Sentry East have been excluded.
Rental revenues increased $261,100 or 7%, and $1,048,400 or 9%, respectively,
for the quarter and nine months ended September 30, 1995 when compared to the
quarterly and nine-month periods in 1994. The primary factor which contributed
to these increases was an increase in the average occupancy rates at all of the
Partnership's properties. Other factors which contributed to the increases in
rental revenues were increases in tenant expense reimbursements at Equitable as
a result of an underestimate of prior year billings in 1994 charged to tenants
in 1995 and an increase in percentage rents at Equitable. Partially offsetting
the increases in rental revenues were decreases in tenant expense
reimbursements at Meidinger Tower and Prentice Plaza due to the issuance of a
partial refund to tenants in 1995 of previously billed 1994 expense
reimbursements as a result of prior year billings charged to tenants in 1995
being less than had been projected in 1994.
Depreciation and amortization expense decreased $55,800 and $162,100,
respectively, for the quarterly and nine-month periods under comparison
primarily as a result of the provisions for value impairment recorded at
Meidinger Tower and Equitable as of December 31, 1994.
Insurance expense decreased $7,300 and $17,900, respectively, for the quarter
and nine months ended September 30, 1995, when compared to the prior year
periods. The decreases were primarily due to lower group rates on the
Partnership's combined insurance coverage as a result of a minimal amount of
claims made over the past several years, which provided a good (loss)
experience relative to the Partnership's properties.
Interest expense increased $124,100 and $651,700, respectively, for the quarter
and nine months ended September 30, 1995 when compared to the quarter and nine
months ended September 30, 1994. These increases were primarily due to
increases in the variable interest rates on the mortgage loans collateralized
by Meidinger Tower, Equitable, Sentry West together with the Partnership's
Front-End Fees Loan as well as a fixed interest rate on the new mortgage loan
collateralizing Deerfield Mall which was higher than the 1994 variable interest
rate on its refinanced mortgage loan.
Property operating expenses increased $96,900 and $177,000, respectively, for
the quarterly and nine-month periods under comparison. Contributing factors
were increases in property management and leasing fees at all of the
Partnership's properties resulting from increases in rental revenues, and
increases in fees for professional services at Equitable, Sentry West,
Deerfield Mall and Prentice Plaza. Partially offsetting the increases in
property operating expenses was decreased utility costs at Equitable and
Meidinger Tower.
Repair and maintenance expenses increased $6,100 and $41,800, respectively, for
the quarterly and nine-month periods under comparison. The increases were
primarily due to higher costs associated with maintaining the properties as a
result of the increases in average occupancy rates.
Real estate tax expenses increased $5,900 and $36,800, respectively, for the
periods under comparison. The primary factors which contributed to these
increases were a projected increase in the assessed value and tax rate at
Deerfield Mall and a projected increase in the tax rate at 1800 Sherman.
Partially offsetting the increases in real estate taxes were decreases at
Equitable and Prentice Plaza as a result of an overestimate of the 1994
liability paid in 1995.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenants and addressing any
expansion needs these tenants may have; 3) promotion of local broker events and
networking with local brokers; 4) networking with national level retailers; 5)
cold-calling other businesses and tenants in the market area; and 6) providing
rental concessions or competitively pricing rental rates depending on market
conditions.
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Cash Flow (as defined in the Partnership Agreement) is generally
not equal to Partnership net loss or cash flows as defined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Cash Flow (as defined in the Partnership Agreement) should be examined in
conjunction with an analysis of net loss or cash flows (as defined by GAAP).
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not necessarily be considered as an alternative to the
results disclosed in the Statements of Income and Expenses and Statements of
Cash Flows.
<TABLE>
<CAPTION>
Comparative Cash Flow
Results for the Nine
Months Ended
9/30/95 9/30/94
- -------------------------------------------------------------------------------
<S> <C> <C>
Amount of Cash Flow (as defined in the Partnership
Agreement) $ 1,312,600 $ 1,867,300
Items of reconciliation:
Principal payments on mortgage loans payable 940,800 287,200
Decrease in current assets 120,100 397,600
Increase in current liabilities 923,300 117,100
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 3,296,800 $ 2,669,200
- -------------------------------------------------------------------------------
Net cash (used for) provided by investing activities $(1,044,900) $ 1,920,600
- -------------------------------------------------------------------------------
Net cash (used for) financing activities $(1,935,200) $(5,203,500)
- -------------------------------------------------------------------------------
</TABLE>
The decrease in Cash Flow (as defined in the Partnership Agreement) of $554,700
for the nine months ended September 30, 1995 when compared to the nine months
ended September 30, 1994 was primarily due to an increase of $653,600 in
mortgage principal payments. The increases in principal payments were due to:
1) excess cash flow amortization (as defined in the extension and modification
agreement) on the mortgage loan collateralized by Meidinger Tower; 2) the
recognition in 1995 of nine months of regularly scheduled mortgage principal
payments on the mortgage loan collateralized by Deerfield Mall and 3) an
increase in the scheduled quarterly principal payment on the mortgage loan
collateralized by Equitable. Partially offsetting the decrease in Cash Flow (as
defined in the Partnership Agreement) was the decrease in net loss, as
previously discussed, exclusive of the decrease in depreciation and
amortization expense and the loss on the sale of Park Central.
The increase in the Partnership's cash position as of September 30, 1995 when
compared to December 31, 1994 was primarily due to the fact that net cash
provided by operating activities exceeded the principal payments made on
several of the Partnership's mortgage loans payable, the repurchase of Limited
Partnership Units, the expenditures made for capital and tenant improvements
and leasing costs and the cash used for real estate tax escrow deposits. Liquid
assets of the Partnership as of September 30, 1995, were comprised of
undistributed cash from operations retained for working capital purposes.
Net cash provided by operating activities continues to be the Partnership's
primary source of funds. Net cash provided by operating activities increased
$627,600 for the nine months ended September 30, 1995 when compared to the nine
months ended September 30, 1994. This increase was primarily due to: 1) the
timing of the payment of certain Partnership expenses, particularly the payment
of $314,300 in 1994 to the holder of the mortgage loan previously
collateralized by One Charles Center; 2) the decrease in net loss discussed
above and 3) to the timing of the collection of tenant rental payments.
Net cash provided by (used for) investing activities changed $(2,965,500) for
the nine months ended September 30, 1995 when compared to the nine months ended
September 30, 1994. This change was primarily due to the sale proceeds received
on the sales of Park Central and Sentry East in 1994, partially offset by a
decrease in 1995 in cash used for capital and tenant improvements and leasing
costs as well as real estate tax escrow deposits and the release in 1995 of the
restricted certificate of deposit collateralizing the letter of credit at
Regency Park. The Partnership maintains working capital reserves to pay for
capital expenditures such as building and tenant improvements and leasing
costs. During the nine months ended September 30, 1995, the Partnership spent
$632,200 for building and tenant improvements and leasing costs. In addition,
the Partnership anticipates spending approximately $1,000,000 during the
remainder of 1995. Included in this remaining amount are building and tenant
improvements and leasing costs of approximately: 1) $330,000 for Equitable; 2)
$280,000 for Meidinger; 3) $160,000 for Sentry West and 4) $130,000 for 1800
Sherman. The General Partner believes these improvements and leasing costs are
necessary in order to increase and/or maintain occupancy levels in very
competitive markets, maximize rental rates charged to new and renewing tenants
and to prepare the remaining properties for eventual disposition.
On September 24, 1994, the joint venture which owns Regency Park, in which the
Partnership has a 25% interest, invested $150,000 in a restricted certificate
of deposit which collateralized a letter of credit for a construction allowance
to a major new tenant which occupies 40,150 leasable square feet at Regency
Park. This amount, of which the Partnership's share was $37,500, was reimbursed
to the new tenant during the quarter ended March 31, 1995 as compliance with
the lease section pertaining to this construction allowance was completed. As
of April 1, 1995, this letter of credit expired.
Net cash (used for) financing activities decreased $3,268,300 for the nine
months ended September 30, 1995 when compared to the nine months ended
September 30, 1994. This decrease was primarily due to: 1) the payoff in 1994
of the mortgage loan collateralized by Park Central I and II from the sale
proceeds of Park Central, as previously discussed; 2) the net principal
reduction from the refinancing in 1994 of the mortgage loan collateralized by
Deerfield Mall; 3) the payment in 1994 of additional loan acquisition fees on
the mortgage loan collateralized by Meidinger Tower and 4) a decrease in the
amount paid in 1995 for the repurchase of Limited Partnership Units. The
decrease was partially offset by: 1) an increase in the amount of principal
payments made in 1995 on the Partnership's mortgage loans; 2) the receipt in
1994 of additional proceeds on the loans collateralized by Sentry West and
Meidinger Tower and 3) a partial principal paydown in 1995 on the mortgage loan
collateralized by Sentry West.
During 1995, the Repurchase Option period continued for the repurchase of
Limited Partnership Interests. The Repurchase Option, as defined in the
Partnership Agreement, allows Holders of Units to resell their Units to the
Partnership.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During 1995, the fifth year of the Repurchase Option period, the Partnership
paid a price equal to 115% of the Unit Holders' Original Capital Contribution
reduced by all prior distributions previously made to the Holder of such Unit.
The maximum amount of Units that the Partnership was obligated to purchase
during the Repurchase Option period was 0.25% of the total Original Capital
Contribution for each and every calendar quarter during the Repurchase Option
period. The Repurchase Option concluded with the payment on October 1, 1995.
In 1993, the joint venture which owns Sentry West, in which the Partnership has
a 50% interest, entered into a letter agreement whereby the joint venture which
owns Sentry West obtained consent from its lender to terminate the lease
agreement with a tenant at Sentry West in order that this tenant may purchase
and occupy one of the five buildings at Sentry East. Pursuant to this
agreement, the joint venture was obligated to pay the lender 50% of the excess
net sale proceeds over $1,300,000 from the sales of the remaining four
buildings at Sentry East as principal paydowns. On December 29, 1994, the
remaining two buildings at Sentry East were sold and the joint venture paid the
lender $598,700, of which the Partnership's share was $299,350, in January 1995
from the net proceeds received from the sales of these two buildings.
The mortgage loan collateralized by Regency Park is scheduled to mature on
December 31, 1995. The General Partner has initiated discussions with the
current lender with the intent of extending and/or modifying the current loan.
There can be no assurance that the General Partner will be successful in these
discussions. If unsuccessful in its attempt to extend or modify the current
loan, the Partnership could face the loss of its 25% interest in Regency Park
through foreclosure.
The mortgage loan collateralized by Prentice Plaza is scheduled to mature on
December 31, 1995. The General Partner is currently attempting to refinance
this property in order to satisfy the total $4,125,000 principal balance
expected to be outstanding at the time of maturity. The General Partner
believes that the current market value of Prentice Plaza exceeds the amount
outstanding on its mortgage debt. The General Partner believes that refinancing
the mortgage loan should be feasible; however, there can be no assurance that
such refinancing will be accomplished.
Because of: 1) the General Partner's conservative approach to projections of
future rental income; 2) the anticipated capital and tenant improvements and
leasing costs necessary to be made at the Partnership's properties during the
next several years; 3) the maturity on December 31, 1995 of the mortgage loans
collateralizing Regency Park and Prentice Plaza and 4) the General Partner's
decision to maintain higher levels of cash reserves in order to meet other
future liquidity requirements; cash continues to be retained to supplement
working capital reserves. Accordingly, no distributions of Cash Flow (as
defined in the Partnership Agreement) will be made until these needs are met.
The General Partner believes that Cash Flow (as defined in the Partnership
Agreement) is one of the best and least expensive sources of cash. For the nine
months ended September 30, 1995 all Cash Flow (as defined in the Partnership
Agreement) of $1,312,600 was retained to supplement working capital reserves.
In addition, the General Partner continues to review other sources for cash
available to the Partnership, which includes the possible refinancing or sale
of certain of the Partnership's properties. However, no assurance can be given
as to the timing or successful completion of any further transactions. The
General Partner believes that the amount of cash retained for future liquidity
requirements, additional proceeds to be received from any sale, disposition,
financing or refinancing of any properties or any mortgage loan modifications
or extensions, as well as the option to defer payment of interest and the
borrowing of previously paid interest on the Front-End Fees Loan (see Note 3 in
Notes to Financial Statements), are sufficient to cover the planned
expenditures for the remainder of 1995.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits: Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter
ended September 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Date: November 14, 1995 By: /s/ DOUGLAS CROCKER II
----------------- ---------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 14, 1995 By: /s/ NORMAN M. FIELD
----------------- ---------------------------------------
NORMAN M. FIELD
Vice President - Finance and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000811117
<NAME> FIRST CAPITAL INCOME AND GROWTH FUND-XII
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,655,700
<SECURITIES> 119,800
<RECEIVABLES> 443,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,218,600
<PP&E> 116,392,200
<DEPRECIATION> 24,686,100
<TOTAL-ASSETS> 98,325,200
<CURRENT-LIABILITIES> 3,931,900
<BONDS> 73,389,400
<COMMON> 0
0
0
<OTHER-SE> 20,715,000
<TOTAL-LIABILITY-AND-EQUITY> 98,325,200
<SALES> 0
<TOTAL-REVENUES> 13,049,300
<CGS> 0
<TOTAL-COSTS> 6,203,300
<OTHER-EXPENSES> 217,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,375,100
<INCOME-PRETAX> (791,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (791,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (791,800)
<EPS-PRIMARY> (.82)
<EPS-DILUTED> (.82)
</TABLE>
